Trump's tax plan to result in 'little-to-no taxes' from multinationals

Australia's top corporates and their advisers say companies are more likely to base future projects offshore thanks to Donald Trump's plans to slash the US company tax rate as well as end taxes on foreign profits of US-based multinationals.

And while big business in America has largely thrown its support behind Trump's tax reform plan, a number of Washington-based lobby groups have warned the changes make it easier for multinational corporations to pay little-to-no taxes on all profits that they book offshore.

US President Donald Trump smiles during an event to discuss his tax reform plan.Credit:Bloomberg

Mr Trump has proposed cutting the US corporate tax rate from 35 per cent to 20 per cent. His plan, which is still scant on detail and has no explanation of how it will be funded, will also give a one-time "tax holiday" to companies such as Apple and Microsoft to return overseas funds to the US. But as yet, Mr Trump hasn't specified what the one-off reduced corporate tax rate would be.

CSL's chief financial officer David Lamont told Fairfax Media that while the tax environment is one of several factors they take into account when making capital investment decisions, it does impact decisions such as where to base future projects.

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CSL, which operates a plasma collection network with nearly 180 centres in the US and Europe, earns about 40 per cent of its total annual revenue in the United States. It is among a number of the nation's largest companies – others include Amcor, BHP, Boral, CSL, James Hardie and Westfield – that have a big presence in North America.

A challenge to Oz?

Treasurer Scott Morrison said the "US has laid down the challenge" in a move to lower corporate tax rates.

Treasurer Scott Morrison said the "US has laid down the challenge".Credit:AAP

He said Australia – where the company tax rate is still at 30 per cent for the big end of town – must move quickly to ensure it is not "stranded for investment internationally when it comes to competitiveness on tax".

AmCham chief executive Niels Marquardt also welcomed Mr Trump's proposals saying it would "put pressure on other jurisdictions to follow suit", or risk losing "some of their competitive edge".

PwC tax partner Paul Abbey said Mr Trump's move will make the US a more attractive place to invest relative to higher-taxing countries such as Australia.

CSL, which operates a plasma collection network, has nearly 180 centres in the US and Europe.Credit:Craig Abraham

How to pass Congress

Mr Trump faces a battle in getting his proposed changes through the Senate – where only two of the 52 Republican senators need to cross the floor for it to be defeated completely.

The Tax Institute's Senior Tax Counsel, Professor Robert Deutsch, said if the proposed changes pass through the US Congress: "Australia will be at a tax disadvantage with yet another of our major trading partners".

"This is a tax plan that benefits the Cayman Islands and Switzerland far more than US taxpayers".

Clark Gascoigne, FACT Coalition.

KPMG tax partner Grant Wardell-Johnson said Trump's proposed cut to the company rate, as well as the new US repatriation model and additional deductions for capital expenditure would "all tip marginal investment decisions away from Australia".

Mr Wardell-Johnson said the Democrats would likely support the proposed move to a territorial tax system. "This would be combined with a transitional measure which would tax at some concessional rate current profits which are parked offshore because it is too costly for businesses to pay US tax on dividends remitted to the US," he said.

US tax holiday

It is estimated US-based multinational corporations currently have about $US2.6 trillion dollars overseas that have not been repatriated to the US because they would be subject to a 35 per cent corporate tax.

Mr Trump will give companies an incentive to return the profits, although he's not yet said how much. In 2004, former US president George W Bush provided a similar tax holiday incentive at a reduced rate of 5.25 per cent.

The Trump plan also would shift to a new "territorial" tax system for multinational corporations. Territorial taxation, in theory, means that companies would not be taxed on their overseas earnings. But in practice, to prevent erosion of the tax base, Republicans will likely impose some form of tax on foreign profits.

Citi analysts said Mr Trump's tax blueprint, if enacted into law, "would constitute a positive for the US pharma sector due to lower corporate tax rates, repatriation of offshore earnings, which would likely facilitate increased M&A, [and] preservation of the R&D tax credit".

In 2004, former US president George W. Bush provided a similar tax holiday incentive like Mr Trump is proposing.Credit:LM Otero

Tax loopholes remain

The Washington-based Economic Policy Institute says "the Republican plan makes the current loophole that big multinational corporations use to dodge their taxes by claiming profits have been made overseas permanent, rather then temporary".

Clark Gascoigne, deputy director of the FACT Coalition, which has been lobbying for greater taxing of US multinationals, agreed that Mr Trump's plan creates "the largest offshore tax loophole in American history".

"This plan will allow multinational corporations to pay little-to-no taxes on all profits that they book offshore by instituting what is known as a 'territorial' tax system," he said.

Mr Trump's plan acknowledges this problem – noting that US committees may attempt to come up with rules to prevent it.

But Mr Gascoigne said countries that have adopted lower tax rates for offshore profits have been unable to prevent corporations from booking profits in tax havens. "This is a tax plan that benefits the Cayman Islands and Switzerland far more than US taxpayers," he said.